Comcast (NASDAQ:CMCSA) has an opportunity to bolster its Peacock streaming service, but it would come at a potentially significant cost. The media division of the company still licenses some of its top TV titles to Hulu. While Comcast owns a minority stake in Hulu, Walt Disney (NYSE:DIS) operates the streaming service.

Early next year, Comcast has an opportunity to remove much of its content from Hulu and offer it exclusively on Peacock, according to a report from the Wall Street Journal. Doing so, however, could negatively impact the value of Hulu, of which it’s unlikely to sell its share in until 2024.

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Trouble taking flight

Peacock has struggled to find much of an audience relative to its peers. Peacock had 20 million monthly active accounts as of July, and management said it added a few million more in the third quarter. Keep in mind, Comcast offers a limited free version of the service, and it includes an ad-supported version of the full service with certain pay-TV subscriptions. It had 17.8 million video customers of its own as of the end of the third quarter.

One solution to the low engagement may be more exclusive content. Peacock has a few exclusives already, including The Office, for which it paid $500 million to license. The sitcom was one of the most popular series on Netflix before it moved to Peacock at the start of 2021. But it hasn’t been the big draw to the fledgling streaming service Comcast’s management had hoped.

Adding new episodes of current TV series like The Voice, Chicago PD, and Saturday Night Live every week may get new users to check out the service and keep coming back week after week. Those series are reportedly strong performers on Hulu.

Comcast will have the opportunity to revoke the licenses for those series and others early next year. Doing so would allow it to negotiate a licensing agreement with itself to stream the series on Peacock starting in the fall of 2022. So, we’re still at least a year away from seeing any impact. If Comcast doesn’t do anything, it’ll have to continue licensing content to Hulu until 2024, when its option deal with Disney comes due.

The risks of taking content off Hulu

There are a couple clear risks for Comcast with this decision.

First of all, it’s receiving licensing revenue from Hulu in exchange for the content. That’s money it’s getting from Disney that it won’t receive if it decides to pull that content and license them exclusively to Peacock. 

There’s a clear cost for Comcast, and it’s unknown whether the additional content will pay off in greater engagement, which could result in more ad sales and subscription revenue. If the new content turns out to perform like The Office, it could be a bust. If it draws subscribers and viewers back week after week, it could be a great investment.

The other unknown is how removing the series will impact engagement and subscriptions for Hulu. As mentioned, many of the shows in question are strong performers. Removing them could increase churn rates for Hulu, limiting its subscriber growth over the next couple years.

While Disney and Comcast agreed on a minimum valuation for Hulu of $27.5 billion when their options come due in 2024, it’s likely the value will go to arbitration and result in a much higher price tag for Disney to buy out Comcast. Comcast may benefit more from a higher valuation from Hulu than from a couple years of being able to exclusively show a few key series.

Exclusives are good, hits are better

While shows like The Voice and Saturday Night Live might be popular on Hulu, they’re rarely the reason people sign up for the streaming service. People sign up for hits. They might stick around for all the other exclusive content, but it’s not the main draw.

As of the end of 2021, Peacock is still searching for a bonafide hit original TV series. Until it finds one, it may be better off continuing to license its content to Hulu in exchange for guaranteed income and to bolster the value of the streaming service.

Investors should keep an eye on this decision and any commentary from management as to why it made the decision one way or another. It will have a meaningful impact on the media business and its fledgling streaming service.